Note: On September 3, 2026, CMS and the SBA adopted CHOICE Model — Custom Health Option and Individual Care Expense — as the federal name for what has been called the ICHRA since 2020. Same benefit, same rules, new name. ICHRA remains in the regulations, plan documents, and contracts, so both terms will be in use for some time.

Affordability — CHOICE Models are “affordable” when the employee’s share of the lowest-cost silver plan for self-only coverage, after the employer’s allowance, stays under a percentage of household income set annually by the IRS. Affordability determines whether an employee keeps or loses premium tax credit eligibility, and whether the offer satisfies the employer mandate for applicable large employers.

Affordability safe harbors — IRS-approved shortcuts that let an employer test affordability using information it actually has — the employee’s W-2 wages, rate of pay, or the federal poverty line — plus location-based rules for which plan’s premium to use, instead of household income the employer can’t know.

Agent or broker — A licensed insurance professional who helps an employee compare and enroll in individual coverage. A plan placed this way — directly with a health plan or through an online enrollment platform — is off-exchange coverage, and it is reimbursable just like a marketplace plan.

Allowance — The fixed amount the employer commits each month for an employee to spend on individual health coverage and, if the employer chooses, other eligible medical expenses. The employer sets it, can vary it by permitted class and by age or family size, and keeps unclaimed amounts.

Carrier — The insurance company that issues the individual health plan the employee selects. With CHOICE Models, the employer no longer holds the contract with the carrier — each employee does.

CHOICE Model — Custom Health Option and Individual Care Expense Model — a model, available since 2020, in which the employer funds a fixed monthly allowance and each employee buys the individual health plan of their choice. Known as the ICHRA until September 3, 2026, when CMS and the Small Business Administration adopted CHOICE model as the federal name. CHOICE — Employers fund it. Employees choose it.

Class (employee class) — A permitted grouping of employees — such as full-time, part-time, salaried, hourly, seasonal, or by geographic rating area — that lets an employer offer different allowances, or CHOICE Models to some classes and a group plan to others. Minimum class sizes apply in certain combinations.

Employer mandate — The Affordable Care Act requirement that employers with 50 or more full-time-equivalent employees offer affordable coverage or face a penalty. An affordable CHOICE Model satisfies the mandate.

Family coverage — An employer may extend the allowance to an employee’s spouse and dependents, or limit it to the employee alone. That decision belongs to the employer and is set in the plan design, though the allowance may be varied by family size within a class.

Group health plan — The traditional model: the employer buys one plan from one carrier for the whole workforce. CHOICE Models are a group health plan for legal purposes, but the coverage itself is individual — each employee owns their own policy.

Health Reimbursement Arrangement (HRA) — An employer-funded account that reimburses employees tax-free for eligible medical expenses. The CHOICE Model is the type of HRA designed to reimburse individual health insurance premiums.

ICHRA — Individual Coverage Health Reimbursement Arrangement — the original name for the CHOICE Model, in use from 2020 until the September 2026 federal renaming. The term still appears throughout the regulations, plan documents, carrier contracts, and administrator platforms, and describes the same benefit. See CHOICE Model.

Individual market — The market where people buy health coverage directly rather than through an employer’s group plan — on a marketplace or directly from a carrier. CHOICE Model employees shop this market with employer dollars.

Marketplace (exchange) — The shopping platform for individual health plans: HealthCare.gov in most states, or a state-based exchange such as Access Health CT or Georgia Access. Employees compare plans, prices, and networks side by side.

Medicare — Reimbursable coverage for an employee who has it: Part A and Part B together, or Medicare Advantage (Part C). An employee enrolled in Medicare can participate in CHOICE Models without buying an individual-market plan.

Minimum essential coverage — The level of coverage an employee must maintain to participate in CHOICE Models — generally an individual-market plan, on or off the marketplace, or Medicare. Short-term plans and health care sharing ministries do not qualify. CMS materials increasingly use the plainer phrase qualifying coverage.

Notice (90-day notice) — The written notice an employer must give each eligible employee, generally at least 90 days before the plan year begins, describing the allowance, affordability, and the employee’s options — including the right to opt out.

Off-exchange — Individual coverage bought outside the marketplace — directly from a carrier, or through an agent or broker or an online enrollment platform. Off-exchange plans are reimbursable, and they are the only plans an employee can pay for pre-tax through a Section 125 salary reduction.

Online enrollment platform — A private website where an employee can compare and buy off-exchange individual coverage, often the tool CHOICE Models administrator provides alongside the benefit. Plans purchased there qualify for reimbursement.

Open enrollment — The annual window — November 1 through January 15 in most states — when anyone can enroll in an individual health plan. Outside this window, enrollment requires a special enrollment period.

Opt-out — An employee’s right to decline the CHOICE Model. If the model is unaffordable for that employee, opting out preserves their ability to claim the premium tax credit instead.

Premium tax credit (PTC) — The federal subsidy that lowers marketplace premiums for eligible households. An employee offered an affordable CHOICE Model is not eligible for the credit; an employee offered an unaffordable one may opt out and claim it. An employee cannot take both.

QSEHRA — Qualified Small Employer Health Reimbursement Arrangement — an older HRA for employers with fewer than 50 employees that offer no group plan. Unlike CHOICE Models, it has an annual dollar cap set by the IRS and no class structure.

Qualifying coverage — The plain-language term CMS uses for the coverage an employee must hold to be reimbursed: a marketplace plan, an off-exchange individual plan, Medicare Part A and Part B, or Medicare Advantage. The regulatory term for the same requirement is minimum essential coverage.

Reimbursement — The tax-free payment from the employer to the employee for a substantiated premium or eligible expense, up to the allowance. Deductible for the business; free of income and payroll tax for W-2 employees.

Salary reduction (Section 125) — A cafeteria-plan feature that lets an employee pay the portion of the premium above the allowance pre-tax — available only for plans bought off-exchange, not for marketplace plans.

Self-employed health insurance deduction — The personal-return deduction that preserves the tax advantage for owners who cannot participate in the CHOICE Model itself — sole proprietors, partners, and S-corporation shareholders owning more than 2%.

Special enrollment period (SEP) — A window outside open enrollment, triggered by a qualifying event, to enroll in an individual plan. Being newly offered CHOICE Models is itself a qualifying event, so employees can enroll when the benefit starts, whatever the month.

State-based exchange (SBE) — A marketplace a state runs itself rather than using HealthCare.gov. Some states are pairing their exchanges with CHOICE-friendly tools and small-business platforms, such as Access Health CT’s BusinessPlus.

Substantiation — The proof — such as a premium invoice or attestation — an employee provides before each reimbursement, confirming they hold qualifying coverage and incurred the expense.

W-2 employee — A worker on the company’s payroll. W-2 employees are who CHOICE Models are for: they participate tax-free under every entity type, while owner participation depends on how the business is organized.

Current as of September 2026. For educational purposes only, not tax advice. Consult your tax professional.